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Money in a Heterogeneous Agent Model

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  • Farmer, Roger

Abstract

I introduce money into an incomplete markets model with heterogeneous agents and uninsurable income risk. I show that the model exhibits both non-monetary and monetary equilibria, with the latter existing when income risk is sufficiently high. Using numerical methods, I characterize the properties of these equilibria and analyze their stability. I find that for a range of realistic parameter values, the non-monetary equilibrium is dynamically inefficient and indeterminate, and there is a second determinate monetary equilibrium with positive valued fiat money.

Suggested Citation

  • Farmer, Roger, 2024. "Money in a Heterogeneous Agent Model," CEPR Discussion Papers 19333, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:19333
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    Keywords

    Indeterminacy;

    JEL classification:

    • E30 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - General (includes Measurement and Data)
    • D52 - Microeconomics - - General Equilibrium and Disequilibrium - - - Incomplete Markets

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